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Executives

Stirling Pack, Jr. – Vice President Investor Relations

John L. Lipiniski – Chairman of the Board, President & Chief Executive Officer

Edward A. Morgan – Chief Financial Officer & Treasurer

Stanley A. Reimann – Chief Operating Officer

Analysts

Arjun Murti – Goldman Sachs

Paul Sankey – Deutsche Bank Securities

Kathryn O’Connor – Deutsche Bank Securities

Jeff Dietert – Simmons & Company International

Analyst for [Evan Vanderveer – Aegis Financial]

CVR Energy, Inc. (CVI) Q1 2010 Earnings Call May 4, 2010 11:00 AM ET

Operator

Welcome to the CRV Energy first quarter 2010 conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stirling Pack, Vice President of Investor Relations for CVR Energy.

Stirling Pack, Jr.

With me this morning is Jack Lipinski, our Chief Executive Officer; Ed Morgan, our Chief Financial Officer and Stan Riemann, our Chief Operating Officer. Prior to discussion of our 2010 first quarter results we are required to make the following Safe Harbor statement. In accordance with federal securities laws, the statements in this earnings call relating to matters that are not historical facts are forward-looking statements based on managements’ belief and assumptions using currently available information and expectations as of this date that are not guarantees of future performance and do involve certain risks and uncertainties including those noted in our filings with the Securities & Exchange Commission.

This presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures including reconciliation to the most directly comparable GAAP financial measures are included in our first quarter 2010 earnings release which we filed with the SEC yesterday after the close of the market. With that disclosure said I’ll quickly turn the call over to Jack Lipinski, our Chief Executive Officer.

John L. Lipiniski

I won’t spend a lot of time on our numbers today. Ed will highlight them and they are available to you from our news release issued last night. Instead, I want to put in to context the environment in which we found ourselves during the first quarter. Then, I’ll talk more about the positive turn that we’ve seen in our businesses since then. After my remarks Ed Morgan will give you details about our financials and then Ed, Stan Reimann, our Chief Operating Officer and I will take your questions.

Last night, after the market closed, we reported a first quarter loss of $12.4 million or $0.14 per share. These results reflect the economic headwinds refiners faced during the quarter and the fact that our fertilizer business results are based on a forward book of orders that were taken last summer and fall when prices were lower. Refining margins improved in the month of March and have continued to rise since then. Nitrogen fertilizer sales are strong and higher prices have been realized on orders taken this year which will show up on our book next quarter.

As you know, we have two diversified but complementary businesses and I’ll speak to each of them. To understand our first quarter petroleum segment results you have to look directly at refining margins. January and February were particularly difficult. In January and February this year the NYMEX 2:1:1 crack spread averaged $7.54 a barrel which compares to an average of $12.71 during the same period a year ago. Meanwhile, the group 3 crack, and that’s where we operate was $11.87 per barrel in January and February a year ago and it averaged just $5.55 per barrel during the same two month period this year. That’s a really significant change.

Both the NYMEX and Group 3 crack spreads fell from the beginning of the quarter through February before beginning to improve. In March, the average NYMEX crack improved $10.03 and the Group 3 crack improved to $9.22. This improvement however could not offset the low margins realized in January and February. For the quarter, NYMEX and Group 3 cracks averaged $8.48 and $6.93 respectively.

Our refinery is a full [inaudible] sour crude refinery and we rely on sweet sour and heavy light differentials for a portion of our economics. In the first quarter of this year, the sweet sour spread West Texas intermediate West Texas Sour averaged $1.89 per barrel. The light heavy spread which we consider WTI and Western Canadian Select averaged $10.47 per barrel. In April, the sweet sour spread increased marginally to $2.08 and the light heavy differential has been trading between $14 and $16 per barrel. The sweet sour spread has not widened the match in the increase in crude prices.

The contango structure in the crude oil markets during the first quarter was also much weaker than during the first quarter in 2009. In the first quarter 2009 contango averaged $2.99 a barrel. The carry in December was $1.43 and that’s December of ’09, in January the carry was $0.43 and by March it averaged just $0.34. For the first quarter 2010 it averaged $0.38 per barrel. Recently, the contango has widened and this morning it is in excess of $3 a barrel. As a result, we’re once again using our storage capacity and Cushing and our proprietary storage to carry excess crude inventory.

Our refinery ran well in the first quarter although we did reduce runs during low margin periods and during those times we performed opportunistic maintenance. For the first quarter we averaged 105,140 barrels per day of crude oil process and the total throughput was 113,120 barrels a day.

Turning to more recent events, in April we had a refractory issue in our FCC or fluid catalytic cracking unit. This outage lasted just under 10 days. All issues have been corrected and the cat is operating very well. We also have our coker down for about six days as a result of a leak which caused a minor fire. No one was injured and equipment damage was very limited. We’re choosing to do some additional maintenance work and the restart is imminent. We’re basically starting to button the equipment up now. Despite these issues, we estimate crude runs for the second quarter will approximately 108,000 to 110,000 barrels per day. Again, we continue to optimize our refinery not for maximum throughput but for maximum economic results.

Besides giving us flexibility, the plant expansion we talked much about made us more efficient. For example, consumed fuel is a major refining expense. In 2009 we used approximately the same amount of fired fuel as we did in 2005. The difference is that in 2009 we processed 22% more crude and feed stocks. Energy efficiency is one of the reasons we’ve been able to maintain our low operating cost structure.

Another segment of our petroleum business is crude gathering. During the first quarter we gathered and transported to our refinery an average of 28,500 barrels a day. Just five years ago those numbers were just 7,000 barrels a day. This month gathering will increase to 31,000. As I said before, the fairly priced gathered barrels improved our refinery’s gross margin and we’ll continue to expand this business.

Let me move to nitrogen fertilizers. Very simply, our plant ran well. We maintained a 96% on stream time for our gasification units, 94.2% for our ammonia synthesis loop and 90.6% for our UAN facility. In the first quarter we produced 105,100 tons of ammonia. Of that, 38,200 were available for sale and the remainder was converted in to 153,800 tons of higher value UAN. Again UAN is urea ammonia nitrate solution.

As you know, nitrogen fertilizer prices fell dramatically in the last half of 2008 and in the first half of 2009 reaching lows in June of last year. Since we carry a fairly substantial book of forward orders, changes in current prices take time to roll through our financials. We book sales upon delivery but the price is set at the time the order is taken so our current numbers reflect lower priced orders taken last year and delivered in the first quarter.

With the steady improvement in nitrogen fertilizer prices, we’d expect a corresponding steady improvement in our fertilizer results as we go forward. The outlook for 2010 corn plantings is estimated at 88.8 million acres which is an increase of 3% over 2009. Corn prices remain strong at $3.59 a bushel for the first quarter 2010 versus $3.74 a bushel for the first quarter 2009.

Before I turn this over to Ed I want to say how please we were with the response to our issuance of $500 million in senior secured bonds in April which replace the term loans which originally financed our business. We’re also pleased with the rating agency process and by the reception our story received on the road. The significant modification to our capital structure provides additional stability and flexibility in running our business in almost any economic climate. We believe this is reflected in Moody’s recent upgrade of our corporate credit rating coincident with the issue of the bonds. Ed will speak more to this in a moment.

But, we’re optimistic that second quarter margins will continue to improve. We constantly adjust our operations to maximize profitability. In addition, we managed our operating expenses and capital in a conservative manner with a focus on safety, reliability and environmental compliance. With that, I’ll turn it over to Ed to discuss our financials.

Edward A. Morgan

Let me add a financial perspective to the operations overview by discussing some recent developments at CVR since our last call. As Jack mentioned, the refining margin in the first quarter 2010 were challenging and significantly lower than what we would have expected for this time period. However, it was in this environment that we found opportunity to significantly enhance our capital structure and provide for financial flexibility going forward through the $500 million bond offering.

Our offering consisted of two secured debt tranches both first and second lien with an average initial interest cost of just under 10%. We’re really pleased with the completion of this financing arrangement and look forward to sharing our future achievements with our new bond holders as well. In addition, we maintained our existing $150 million revolving credit facility which today has $119 million of availability and served to provide ample liquidity to manage our operations and capital needs.

With the market contango expansion that has occurred in the second quarter, we once again have both the crude oil storage capacity and financial liquidity to capitalize on returns this market opportunity affords CVR. In addition to our financing successes in early April, Moody’s did upgrade CVR’s long term corporate family rating to a B1 from a B2 with as stable rating outlook. This does represent the second upgrade the company has received over the past 10 months with the other coming from Standard & Poors last summer.

We believe this recognition is both deserved and a result of our efforts to add regular communications with the rating agencies and our debt holders, many of whom are on the call today. As Jack and I stated on previous calls, we have completed significant capital projects in recent years to upgrade and modernize our petroleum and fertilizer operations since the original acquisition of our assets. Consequently, our growth capital requirements are very modest over the next two years. This benefit is reflected in our first quarter 2010 cap ex of $11.4 million total spend of which $9.1 million was for the petroleum segment.

We remain on target for total capital spends of $68.4 million for 2010 with just over $52 million of that slated for the petroleum segment. As we’ve indicated in earlier meetings, we believe a good proxy for annual maintenance capital spending is approximately 1% to 1.25% of the replacement cost of our refining assets. For 2010 we expect to spend approximately $27 million on maintenance capital although we do recognize this expected spend does have the ability to shift between months.

In closing, we are currently in the process of bringing our new ultra low sulfur gasoline unit on line this quarter, well in advance of our yearend 2010 deadline. In this current operating environment we will continue to be strategic with our capital dollars, only spending what maintenance capital is necessary to operate a safe and reliable facility. With this, I’ll turn the call back to Jack for his remaining thoughts.

John L. Lipiniski

As we look forward, I want to reiterate that we are seeing more improving margins. In addition, the crude contango has widened and we plan to use available cash to carry higher level of crude inventory and benefit from the carry. Prices for ammonia and UAN improved substantially from the second half of 2009. Demand has been strong, inventories are at seasonal lows and our book of orders is slightly above historical levels.

Before we take questions, I want to acknowledge our management team and employees. We’re proud of our facilities, we know it’s the experience of our managers and employees that make the difference every day and we applaud their efforts. I’ll turn the call back to Stirling for questions.

Stirling Pack, Jr.

Operator, we are ready to take questions whenever you have people queued up. We’ll turn it back to you for that.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Arjun Murti – Goldman Sachs.

Arjun Murti – Goldman Sachs

Jack, I was wondering if you could provide any commentary or update on what you’re seeing out there in terms of acquisitions or M&A opportunities? There’s been a number of smaller assets being traded and is that the kind of thing you all would still have an interest in? Maybe with some of the debt restructuring you’ve recently done does that make it easier to consider these types of opportunities?

John L. Lipiniski

As always we keep our eyes open for whatever is in the market. Right now there is not a lot that is really interesting that is not simply a cast off of somebody else. If somebody else couldn’t run it and make money, we see some of those on the market. While I like to think we’re really good I’m not sure that we’re that good that we could take something that somebody else couldn’t make money on and turn it in to something. But, we are always looking. Our capital structure obviously puts us in a better place in that regard. We believe over time that other assets will come up that are simply not orphans.

Arjun Murti – Goldman Sachs

You also mentioned the margin environment has been improving here. Could you just comment at all on sort of the light heavy spread outlook specifically? And maybe what you’re seeing and what you expect over the next several quarters?

John L. Lipiniski

Well it is improved. During the winter they were somewhat depressed because some of the Canadian lines were using heavy crude for line fill which put demand on it which usually in December, January and February you get really good [inaudible], they didn’t show up. Once that was completed we’re now seeing WCFs out about $16 below WTI, FOB is hard to see so you have to still bring it home. That’s an improvement quite honestly.

Month after next I think we’re scheduled to run something in the range of 25,000 barrels a day of heavy crude. As the prices have spread it’s become economic to run the heavy crude. Heavy crude is less expensive but it also has a lower refining margin so you have to balance the two. But, we’re starting to see where it’s profitable to run the heavy barrel and that’s what we’re planning on doing.

Operator

Your next question comes from Paul Sankey – Deutsche Bank Securities.

Paul Sankey – Deutsche Bank Securities

Just a follow up on that last statement you made, is the lower margin related to op ex on the heavy crude?

John L. Lipiniski

It’s usually related to yield. For most people that will take this in to a coking refinery. Basically it’s a liquid volume yield. Every refinery, or I’ll make that generalization has a volumetric loss and the heavy crudes have more coker feed and the more you coke the higher your volumetric loss. You do get more value products out of the coker but the coke actually will reduce your liquids for sale. So the differential has to overcome not only perhaps some operating cost disadvantages but also the liquid yield disadvantages.

Paul Sankey – Deutsche Bank Securities

I guess it’s like a couple of bucks to get it from [heart of sea] to you guys?

John L. Lipiniski

It’s about $4.

Paul Sankey – Deutsche Bank Securities

How much does it cost to get stuff from Cushing?

John L. Lipiniski

I’m going to do this off the top of my head, $0.30 or $0.35.

Paul Sankey – Deutsche Bank Securities

If I could work backwards a bit Jack please, just the fertilizer aspect here, we’ve been hearing that the planting is well above normal and I just wondered what observations you’ve got? You’ve also mentioned that you’re somewhat locked in to lower prices, just talk a little bit more if you could. I think you partially addressed it about the roll through. Firstly, why are these guys ahead of schedule on what they’re doing farming wise? How sustainable is that going to be going in to the second half? And thirdly, how much is that going to affect future pricings?

John L. Lipiniski

I’ll mention briefly and then I’ll turn it over to Stan. Seasonally fertilizer reaches its peak in season. This is in season when it’s going down on the ground. We have a unique situation from last year where prices actually hit their low in June and that was because of the prior year back to 2008 where prices went up like most commodity prices did at very, very high levels. Unfortunately, a lot of people did not sell out their inventory thinking that the prices would recover and the longer they held the material in inventory the lower the prices went and finally the damn broke last year and everything came back to the more normalcy.

We are seeing prices that are pretty much like 2007 level areas right now for both ammonia and UAN and 2007 wasn’t a particularly bad year. Stan, would you like to talk a little bit more where we are in season and what you’re seeing going forward?

Stanley A. Reimann

Paul, I would characterize the planting season probably a little bit more closer to normal. They are a little bit ahead of schedule, they got a little bit of a late start but they caught up quick. The reason for that is just a good weather pattern across Nebraska, Illinois and Iowa that’s allowed them to catch up on the planting. Going forward, the planting expectations that have been articulated recently are in the 87 to 88 million acres of corn and if that remains true I expect the fertilizer season to finish well. We’ve got a good book of orders and the price is significantly above where they were third and fourth quarter so we’re feeling pretty good about the fertilizer business and our expectations in the second and third quarter.

Paul Sankey – Deutsche Bank Securities

Then if we look at your margin as you mentioned how much better Group 3 are doing right now, could you just talk Jack a little bit about the drivers within the specific product groups is because my understanding for example distillate is still lacking, gasoline is probably better than we thought it ever would but is holding up well distillate seems that trains might be ahead and trucks behind, I don’t know you tell me.

John L. Lipiniski

Well right now talking to the group specifically the Group 3 crack is roughly equal to the NYMEX crack today. The actual physical east coast crack is not, the Gulf coast crack is not and Chicago is roughly in the same area we are. We are seeing a positive basis on distillate over New York and every area is seeing a negative basis on gasoline. So today, within a $0.005 a gallon or so we’re even to the NYMEX.

If you look historically, this is the time of year where we’re significantly above but the Gulf and the east coast are significantly below so I’m not sure if we’re starting to see a little disconnect between the NYMEX which is a traded barrel versus the physical markets. But again, we are basically the best group in [pad 1, 10 and 3].

Paul Sankey – Deutsche Bank Securities

And the drivers of that demand? Because, it sounds like I got it a bit upside down there and actually distillates are going to be better and gasoline a bit worse than what we seen in the New York?

John L. Lipiniski

A lot of it has to do with just planting in our area. We actually have seen increase railroad demand. For the first time I guess in almost two years, we’ve seen a couple of railroads come in and put in additional orders for distillate for diesel.

Operator

Your next question comes from Kathryn O’Connor – Deutsche Bank Securities.

Kathryn O’Connor – Deutsche Bank Securities

Can you give us a little bit of color about what is happening in the Gulf of Mexico and how it’s affecting both of your businesses?

John L. Lipiniski

Right now it is not. Again, we don’t source very much [inaudible] we do source crude out of the Gulf of Mexico. Given the current contango spread – there’s a couple of things that go on in contango, the contango is representing WTI as being an undervalued crude and it’s in Cushing where the rest of the crude in the world is priced probably closer to something like a [Brant] for example LLS, Louisiana light sweet which is a WTI look alike is trading $5 over WTI. [Brant] is trading over WTI.

The Gulf Coast deep water crudes are trading significantly over WTI so in today’s environment we’re not even trying to buy them we’re focusing on Canadians and domestic crude. Foreign is difficult in this kind of structure. We don’t see wide spread shut downs of producing platforms and because of the [ARB] in the market we had recently bought and already delivered one foreign cargo but right now where prices are we’re not looking at those. We’re basically midcontinent Canadian gathering so we don’t see a major impact unless this thing gets worse, and worse, and worse where shipping actually shuts down. But, none of the platforms seem to have been shut down other than a couple of gas platforms and if fertilizer imports are held out because of the spill it would certainly help us not hurt us.

Kathryn O’Connor – Deutsche Bank Securities

You think that improvement that you’re going to see in the fertilizer business say if the Mississippi shuts down, do you think that short term would be a benefit or longer term a negative? Or, do you think it will benefit you solidly for the next short to medium term?

John L. Lipiniski

I think obviously is the Mississippi got shut down it would be a positive for us because don’t forget we are an importing nation of fertilizer as well. Stan would you like to add?

Stanley A. Reimann

No, that’s absolutely right. The Midwest is a heavy importer or urea and to some extent UAN and ammonia and I don’t know if it’s going to happen. I think not but it would help us because obviously we’re in place with our fertilizer products and it would slow the imports coming up the river for the later part of the fertilizer season and more predominately for the fill season that takes place this summer so it would strengthen the market no questions about it.

Kathryn O’Connor – Deutsche Bank Securities

I guess that question is more directed towards in the short term I can see that if we’re net importing ammonia if we would need local producers like you guys but I’m wondering longer term if you can’t get the product out how do you view that?

Stanley A. Reimann

The product going out, the first bottle neck would be the green season in the fall. If the Mississippi is going to be shut until the fall we’ve probably got more problems than just talking about the Mississippi. The movement of fertilizer to your question, if as an example it’s shut down 30 to 60 days, they can catch up pretty quick. I would just expect imports to pick up afterwards and catch up in the third and fourth quarter. I don’t think it would be much a long term affect. They have the ability and the equipment to catch up pretty quick.

Kathryn O’Connor – Deutsche Bank Securities

So net positive across the board then?

Stanley A. Reimann

I think so.

John L. Lipiniski

Kathryn, the thing is we’re about to go in to the fill season on fertilizer. For the next several months we will be shipping in to third party storage under orders we will take and that inventory builds for eight or nine months before it gets applied so there’s a huge – and it’s getting empty right now because of the planting so there’s a huge void to fill. To Stan’s point, it doesn’t get filled any given day, it gets filled over a long period of time but, if the Mississippi shuts down because of our location and not that I’d like to see it happen but it would be a net positive.

Kathryn O’Connor – Deutsche Bank Securities

So it’s not a timing issue if you look at it, regardless of timing, due to the other dynamics you are pointing to it would be hard to argue that it would be a negative?

John L. Lipiniski

That’s correct.

Kathryn O’Connor – Deutsche Bank Securities

Then just back to some of the information you gave us about the malfunction, did you say that the coker was six days and the cracker 10 days?

John L. Lipiniski

That’s correct.

Kathryn O’Connor – Deutsche Bank Securities

And you said that you expected throughput to be in this quarter, in the second quarter taking that in to account 108,000 to 110,000 barrels a day?

John L. Lipiniski

That is our current estimate, right. Then we also had about $4 million or about $0.05 a share of additional cost that were just for the maintenance.

Kathryn O’Connor – Deutsche Bank Securities

Is that number then not contemplated in your previous turnaround expenses?

John L. Lipiniski

No, we had a refractory failure in our FCC and this was actually new refractory at our 2007 turnaround and we were disappointed that something that should have lasted 10 years came apart like that. Then the coker was simply a leak in an elbow. There are offsets as we go forward, obviously as we go and shut these units down we’re doing other things that have been limiting us. We had planned for example effectively to have three days of coker outage in July to decoke our furnaces. Well, we did that decoke right now so that obviates three days of outage later in July but that’s outside this quarter. But the actual incremental maintenance costs is somewhere in the range of $4 million.

Kathryn O’Connor – Deutsche Bank Securities

So you did what you could within the confines of that malfunction to do some maintenance but you’re saying in addition to whatever regularly scheduled maintenance you’ve done an additional $4 million?

John L. Lipiniski

That’s correct. There’s an absolute cost every time you have to mobilize and take major equipment up and down, just simply starting it up, shutting it down, cleaning it out, bringing contractors on, doing inspections and then doing whatever repair we needed.

Kathryn O’Connor – Deutsche Bank Securities

Then just to maybe compare it to a similar situation you had maybe a year ago, I think in that situation you took down throughput to 101,000 to 102,000 barrels per day on average so you’re saying that if we looked a similar situation in the past that this should be a little bit better in terms of the net decline in throughput per day?

John L. Lipiniski

That’s correct. I mean, we did drop with the cat outage and we actually did take – again, every time we have an opportunity, actually I don’t like to use the word opportunity, every time the situation presents itself where we go in and do some other repair without hurting our overall crude throughput for example even with the coker right now we’re slightly above 100,000 barrels a day and with the cat we were just slightly below 100,000 for the period. Then when we come back up we have makeup capacity we will balance feed stocks, blend stocks and our inventories but we can pretty easily run at 120,000.

Operator

Your next question comes from Jeff Dietert – Simmons & Company International.

Jeff Dietert – Simmons & Company International

The contango in the forward curve is a significant benefit for you going in to the second quarter. Can you talk about the major factors driving that contango and how long you think it might stay wide?

John L. Lipiniski

There are actually a number of reasons. It kind of surprised us how rapidly it came upon us and how steep it is but one is the strong dollar which tends to depress a lower crude price. Canadian production has come on strong after what was a very long, cold winter up there. I mean, even Spear Head went on allocation, there was a lot of Canadian oil coming down. Keystone is going to start delivering going forward in to June. Keystone is going to start delivering in to Wood River with [inaudible] which is going to put more barrels in the midcontinent.

We’re seeing Bakken and DJ Basin crudes coming in to Cushing. Basically, there’s a lot of crude moving to Cushing and there’s limited storage in Cushing so what’s happening is in a way it’s a cycle. People have to lower the price to be able to get in to the storage and the more that you store there the lower the price goes. It takes about 30 days, just so everybody understands, when contango hits it doesn’t hit you on the day it shows up. You get the benefit when you do your roll, basically your long products so you sell the paper against it and when you roll that paper is when you actually benefit from the contango.

So, if it shows up at any point in a month, you may have already done some rolls prudently. You don’t wait for one day you do them somewhat ratably. So as we roll this through 30 days from now we’re going to see marked improvements in our crude differentials as we land WTI at pretty attractive numbers.

Jeff Dietert – Simmons & Company International

Some of those activities are going to be ongoing? Bakken is going to continue to rise, Keystone deliveries are going to be an ongoing factor?

John L. Lipiniski

That’s correct. There was a period here not too long ago where [ARB] opened up and like I mentioned earlier, we brought a South American cargo up in to Cushing. Well, we weren’t the only one because when the [ARB] opened – right now the [ARB] is shut, anything that’s going to be [Brant] related or a water born related barrel is expensive against WTI. WTI has become the cheapest crude in the world.

Jeff Dietert – Simmons & Company International

I also wanted to ask Stan, on pricing could you talk about your UAN and ammonia books where you’re expecting 2Q pricing to be and kind of what current pricing is on volume that you’re putting in to your backlog?

Stanley A. Reimann

Our expectations I think based on current order activity and our book would be north of $200 and maybe north of $210 for the second quarter depending on how the quarter ends. So we’re expecting a good pricing scenario in the second quarter in to the third quarter. As far as the book is concerned, we’ve got just a little bit heavier book than we would historically have. I personally don’t read a lot in to this because in a matter of 10 to 15 days you can catch up on shipping. But, our book now is a little bit over a month’s production and normally it is under a month’s production at this time. Again, we expect price to be relatively strong in the second quarter and hopefully in to the third quarter.

John L. Lipiniski

Just to kind of give you relative, our book back in last June and July was in the $130 range, today it’s over $200.

Jeff Dietert – Simmons & Company International

Where is current pricing?

Stanley A. Reimann

We’re taking orders north of $220 in Nebraska, Iowa area and probably a little north of $230 in the Kansas, Oklahoma market.

John L. Lipiniski

That’s for prompt ship.

Stanley A. Reimann

That’s for prompt ship, truckloads for prompt ship or cars prompt ship.

John L. Lipiniski

Historically Jeff you will see a softening of that market going in to fill because people are paying up for prompt delivery.

Operator

Your next question comes from Analyst for [Evan Vanderveer – Aegis Financial].

Analyst for [Evan Vanderveer – Aegis Financial]

Just on the refining side of the business briefly, I know you touched on it earlier but for us lei people here, I see the gasoline basis has dropped off considerably in the first quarter and it’s really been pretty solidly negative for most of the past year. I know you were mentioning something about going to parody here with the NYMEX, are you talking about parody on that gasoline basis number that you disclosed?

John L. Lipiniski

No, parody on the 2:1:1. I’m sorry if I wasn’t clear. We think in 2:1:1. Gasoline is negative, it’s negative in every area including physical in New York. So what has happened is just pretty much like crude is priced off of the NYMEX, it’s not priced off the fundamental so what we see is we see the screen, we do everything off the screen. Everything is traded plus or minus the screen. But, if you look across [pads 1, 2 and 3] gasoline is soundly negative, Chicago is a little bit less negative than we are but they’re not as strong on distillate. So what I am saying is that we’re probably negative round numbers, you can look at them I’m going to do this from the top of my head, gasoline is $0.07 under the screen in the group and distillate is $0.07 over the screen in the group.

Analyst for [Evan Vanderveer – Aegis Financial]

So if we’re looking at the NYMEX 2:1:1 crack, it would be versus the [pad 2:1:1] crack?

John L. Lipiniski

[Pad 2]. Don’t forget we’re the group and the [pad] is basically Chicago and the group. We trade differently but that’s a pretty close proxy. I would say that Chicago is probably, and I’m going to do this again forgive me if I’m wrong, $0.04 off on gasoline and $0.04 on distillate or something close to that.

Analyst for [Evan Vanderveer – Aegis Financial]

When’s the last time you guys were sort of even?

John L. Lipiniski

Just the last few weeks we’ve been even. It’s unusual, if you look at our long term average, a 10 year average take out the high spot, by now we should be soundly positive which tells me that when you look at the NYMEX as the basis, maybe there’s something fundamentally different about the way products are trading on the NYMEX than they have in the past.

Analyst for [Evan Vanderveer – Aegis Financial]

Then on the fertilizer side you also touched on this, what average discount do you guys sell out to that index? You disclosed I guess the mid corn belt, what’s the average discount usually?

Stanley A. Reimann

The numbers I were talking about would be net max to the plant. When I said the Nebraska, Iowa market was $220 that would be a net back realized number, the delivered price would be $275 to $290 but the number I gave you is with the freight off of it.

John L. Lipiniski

It costs us roughly, round numbers, truck if it’s delivered in truck there’s no discount because it’s customer truck at our rack. If it’s rail, our average rail cost I guess across all the barrels is somewhere around $30 a ton.

Stanley A. Reimann

I’d probably call it $35 but you’re in the zip code.

Analyst for [Evan Vanderveer – Aegis Financial]

Then the Midwest corn belt price I guess is a delivered?

Stanley A. Reimann

Well delivered or terminal if you have terminals in the corn belt but your terminal price across Nebraska and Iowa is probably $275 to $280 range which would also obviously be the delivered price if you were shipping in to that geography.

John L. Lipiniski

Again, when Stan is talking terminal prices, terminal operators also basically are extract the fee for the terminal and the storage and everything else so it moves. It depends on where you ship. Our biggest markets are Nebraska, Kansas and northern Texas but we move material to 26 or 28 states, Canada and Mexico. The basis on which you look at it, you have to understand that not all the product goes there.

Analyst for [Evan Vanderveer – Aegis Financial]

Then ammonia where is that tracking right now on a realized basis?

John L. Lipiniski

Over $300.

Stanley A. Reimann

Net backs to the plant are in the $300s, north of that.

Analyst for [Evan Vanderveer – Aegis Financial]

Finally, the SG&A of course is awfully confusing, it has a lot of moving parts in it. Just on a cash basis, on a smoothed out annualized basis, where do you think the cash SG&A is running at for the entire firm at this point?

Edward A. Morgan

Let me talk to the quarter first, it was $21.3. That did have $7.3 of deferred comp in it and plus $1.1 related to some financing costs that we expensed related to that fourth amendment that we did which allowed us to do the bond offering. You net those down you’re at approximately a run rate of $12 to $13 million for the quarter, that’s the cash.

Analyst for [Evan Vanderveer – Aegis Financial]

And you feel that’s a fair number to use going forward?

Edward A. Morgan

Yes.

Operator

Mr. Pack there are no further questions at this time. I’d like to turn the floor back over to you for closing comments.

Stirling Pack, Jr.

We really appreciate everyone being on this call this morning. It has been a good product call with a lot of information exchanged. We appreciate the call volume this morning which was very high. We look forward to completing this quarter and visiting with you the next time around. Certainly, we’re here and available for any additional comments or questions you may have until the next call. Thank you again and we’ll speak to you soon.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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